Archive for May 2010

EU lawmakers to look into palm oil discrimination

The following are written by my colleague Rupa Damodaran.

European Union (EU) lawmakers are increasingly convinced that Malaysia is on the same path as the EU on the sustainability of palm oil production, but would need more scientific data to support Malaysia's case.

Dan Jorgensen, who is the vice-chair of the environment, public health and food safety committee in the European Parliament, has promised to bring Malaysia's case on its discrimination versus other oils in the Renewable Energy Directive (RED).

"We don't want any discrimination at all of the palm oil sector, and we promised the industry here to help have discussions with the EU on this," he said.

Jorgensen, who was in Malaysia last week with two other Members of the European Parliament (MEPs) Martin J. Callanan and Ole K. Christensen. They were impressed with the work undertaken by the government and the palm oil industry on sustainability efforts.

"People in Europe don't know how efficient an oil it (palm oil) is. I wasn't aware myself how much oil you can get per hectare compared with other oils - in that way it is discriminated against," he added. Oil palms on the average produce 2.5 times more oil per ha than rapeseed.

According to the RED which will come into force in December this year, biofuels must have greenhouse gas savings of at least 35 per cent and according to EU's calculation, the use of palm oil-based biodiesel failed the requirement as it achieved only 19 per cent. "We promise to look into the discrimination (claim) and, if there is, we'll do everything in our powers to change it. The numbers would need to be accurate and based on scientific data," said Jorgensen.

A social democrat MEP who hails from Denmark, Jorgensen said the EU is committed to the sustainability criteria as it helps mitigate problems of greenhouse gases, climate change, global warming and also biodiversity. "We're happy to hear that the industry acknowledges and respects it. They have been discussing how it can become more competitive on the sustainability criteria."

Jorgensen also suggested that the palm oil industry considers making entrapment of methane gas mandatory to increase the energy efficiency of Malaysia. Palm oil mills are currently encouraged to trap methane gas from palm oil mill effluent.

"We are convinced that the industry has been doing a lot and we expect it will proceed to become more sustainable because palm oil is important for biofuel as well as oil for food," he said.

The EU lawmakers recognised that palm oil has been the largest contributor of wealth to Malaysia and lends bigger potential compared to the other edible oils.

Christensen also lauded Malaysia for its achievements via oil palm planting in bringing the people out of the poverty bracket, especially in the Felda smallholder schemes. "Palm oil is not a bad thing as is being perceived by many people in Europe. We are gratified that Malaysia has strict laws in place to make sure no more rainforests are destroyed and expansion is on agriculture land," said Callanan.

Callanan also does not expect Malaysia to be affected by the RED in the short term as the use of palm oil for biofuel in the EU is still very small. 

Malaysia's ambassador to the EU, Hussein Haniff, who also attended the meeting in Kuala Lumpur, said more outreach programmes were necessary to enable the EU lawmakers to be convinced that Malaysia is not clearing rainforests to grow oil palm. There is also the tendency to lump both Malaysia and Indonesia, the top two producers of palm oil, together.

"We want an equal playing field and they are willing to take up on the verification of scientific data. From what we know, they have outdated data. In the process of review, if they find the default value is not 19 per cent, then it will be good for us to be on par with the other oils," said Hussein.
Palm oil deserves equal trade opportunities 
TRADE in palm oil products should not be victimised by legislation in the European Union (EU), and in Australia, arising from the Western anti-palm oil campaigns, said the Malaysian Palm Oil Council (MPOC) chief executive officer.
Tan Sri Yusof Basiron said that such legislation would be seen as a trade protection measure, which could force the affected countries to relatiate.
Malaysia's above average performance in habitat conservation of the orang utan and in greenhouse gas emission (GHG), as well as being a net sequester of carbon, deserves recognition, he said.
"We have earned our right to trade. We should not be asked to clean the mess (GHG emission) of developed countries," Yusof said in addressing the International Palm Oil Sustainability Conference in Kota Kinabalu recently.
He cited the refusal of Russia, a world leader in timber production and export, to comply with the EU-certified timber scheme. Likewise, palm oil should not be singled out for sustainability compliance unless other competing oils are also subjected to similar requirements.
GHG emission is not an issue as Malaysia is a net carbon sink country with more than 82 per cent tree cover provided by permanent forests and plantation crops, including oil palms, rubber, cocoa and coconuts.
Yusof said the Western non-governmental organisations (NGOs) should focus on campaigning for the reduction of GHG emission in their own countries, for instance, closing polluting coal mines.

"How is it that the UK produces 18 million tonnes of coal per year and the NGOs do not seem to notice the GHG emitted but they can detect burning of a few hectares of forest for agricultural conversion in Indonesia 10,000 km away?"
He pointed out that 66 million tonnes of carbon dioxide emitted a year from 18 million tonnes of coal produced in the UK was equivalent to deforestation of 378,000ha of degraded rainforests.
"This is more than double the yearly expansion of oil palm cultivation in Malaysia which in the past involved deforestation of degraded forest land zoned for agriculture."
Yusof warned that the Western-orchestrated palm oil campaigns could drive small oil palm growers in Indonesia and Malaysia to poverty even as the industry has been trying to raise the earnings of those in Indonesia to US$20 (RM66) a day from US$5 (RM16.50) currently.
The dangers of global warming should not be used to stifle oil palm expansion unless other GHG emitters in the developed countries are equally focused on mitigating GHG emission, such as taking steps to shut down their coal mines.
On the Sarawak peat paradigm, Ramesh Veloo, Paimin Selamat and Shahrir Abdul Aziz from Tradewinds Plantation Bhd listed zero burning, good water management and palm nutrition as important elements to consider in planting oil palm trees in peat soil.
Sarawak has the highest distribution of peat in the country at 64 per cent of the total of 2.58 million hectares. According to the Malaysian Palm Oil Board, 400,000ha of oil palm in the country is on peat land out of a total oil palm area of 750,000ha in Sarawak.
Tradewinds has 75,000ha of oil palm in Sarawak, with the crop grown in both mineral soil and peat soil.

We brought in the weevils from Africa

This newstory under the "I remember when..." column was published in New Sunday Times.

Several methods were tried, to limited success, until weevils were brought in from Cameroon to do the job. Several experts shared with TAN CHOE CHOE the story of the bug that has made Malaysia the largest palm oil exporting country in the world.

SOME of the world's greatest discoveries came about because of a refusal to accept established norms.

 Malaysia is the biggest palm oil exporting country in the world today because Datuk Leslie Davidson refused to be hemmed in by claims in textbooks that oil palm fruits could only be wind pollinated.

Davidson, who rose to be the chairman of the plantation group at Unilever, Britain, introduced oil palm in Sabah in 1960 when he was an estate manager and opened the Tungud estate in the Labuk Valley.

Although the plants grew well, they did not bear much fruit. Scientists theorised that this was because heavy rain had washed the pollen away.

Davidson was, however, sceptical. As a young planter in Cameroon, West Africa, he had seen bountiful fruits on oil palm plants despite heavy rain. At the time, Johor's oil palm estates were yielding bigger fruit bunches than the ones in Sabah because they had an insect pollinator -- the thrip hawaiiensis.

Without assisted pollination, the weight of fruit to bunch in the Labuk Valley was only around 30 per cent. In Johor, it was about 54 per cent, while in Cameroon, over 65 per cent. "We experimented with hand pollination and achieved standards close to Johor's, although still not as good as in Cameroon."

Davidson kept turning over the problem in his mind until he remembered "the little beasties" he saw in Cameroon.

"Davidson asked Unilever to follow up on his hunch and whether those insects pollinating the palms in Cameroon could be brought in to Malaysia," said Mahbob Abdullah, who was then the general manager of Pamol Sabah under Unilever. Davidson was his boss.

Mahbob said Davidson approached the Commonwealth Institute of Biological Control (CIBC) for their expertise, and got Datuk Dr Rahman Anwar Syed, an entomologist from Pakistan, to undertake the study.

Rahman proved, in a series of experiments, that the oil palm in its original habitat was pollinated by several different insects, the most effective of which was the weevil named elaeidobius kamerunicus.

Armed with the results, Unilever's research head in Malaysia, Dr R.H.V. Corley, approached the Department of Agriculture's plant quarantine section head, Datin Kang Siew Ming, who was just into her second day at the job.

Kang recalled: "On hearing their story, I sensed the enormous impact these weevils would have not only on Pamol Estate, but the entire oil palm industry. But I was concerned that the weevils would cause damage to the oil palm itself or become a pest to other economic crops."

Kang's section enforces the Plant Quarantine Act and Regulations 1961, which controls and regulates the entry of all insects, plants and plant products into the country.

To confirm Rahman's findings, a delegation led by Mahbob, comprising Kang, Zam Abdul Karim, an entomologist with the Agriculture Department and Dr Tay Eong Beok, the assistant director of Agriculture, Sabah, went on a field trip to Cameroon.

"We had to wake before dawn to observe the weevils' pollinating activities. Zam and I took turns climbing onto selected palms. We saw the comings and goings of several weevil species and were convinced that the elaeidobius kamerunicus was the best pollinator," said Kang.

It was also found that the weevils had evolved with the oil palm plants and developed a very synergistic relationship with them. After being briefed on the findings, the then director-general of agriculture, Datuk Ahmad Yunus, issued an import permit for the weevils.

In June 1980, Rahman arrived in Kuala Lumpur with 1,044 weevil pupae individually packed in plastic vials.

They were immediately taken into the quarantine insectary at Jalan Gallagher.

The 1,044 pupae were the remains of the 2,000 pupae sent to London for intermediate quarantine checking at the CIBC labs.

Although they spent only one day in London, the journey proved too long for the creatures to remain as pupae. Some adults had emerged and all were examined by Kang and Zam for possible contaminants.

"Only about 400 vigorous ones were selected. The rest were destroyed," said Zam. "We also tested them with some common pesticides. We needed to be ready to kill them in case anything went wrong," she added.

After some six months of testing, Zam and Kang were finally satisfied the insects would bring no harm and their results were presented at a meeting of experts from various research agencies. They obtained final authorisation to release the weevils for commercial use at Uni-Pamol Malaysia's Mamor Estate in Kluang, Johor.

"Rahman and I packed one insect-cage of male oil palm spikelets full of weevils and then he drove us from the insectary to Mamor estate under Uni-Pamol Malaysia in the early morning of Feb 21, 1981."

In the presence of Corley and many other Pamol staff, Rahman held the cage, Kang slid open the cage door and the weevils flew out to make their new home in Malaysia.

"I remember Rahman wishing them, 'God bless you in your new home!', as he observed the cloud of flying weevils heading for the oil palms. They had been his constant companion for almost three years," said Kang.

"The weevil is a hardworking insect. The weevil population exploded after they were released in Mamor.

"Soon, the weevils were taken to other countries and they have helped with the growth of the industry in Indonesia, Thailand, Papua New Guinea, Solomon Islands and India," said Mahbob.

In Sabah, the insects were released by Rahman on March 13, 1981 at the Pamol estate in Labuk. Since then, Sabah has overtaken Johor as the biggest palm-oil producing state in Malaysia.

Friction and vested interests in pulp and palm oil production

Bill Durodié, who resides in Singapore is the author of this commentary published in the Jakarta Post. He is a senior fellow in the Centre for Non-Traditional Security Studies of the S. Rajaratnam School of International Studies at the Nanyang Technological University.  

Campaigns against big pulp and palm oil producers in Indonesia appear to be driven by local activists on the ground. In reality, they are facilitated by huge budgets and shaped by agendas emanating from the West.

Pulp and paper production is big business. So too is palm oil.

Steady global demand for paper and packaging, combined with increasing interest in bio-fuels and replacement fats for the food industry, have made these some of the largest and fastest-growing industries in Southeast Asia.

Indonesia and Malaysia alone, now account for 85 percent of world palm oil production, and their share of the wood, pulp and paper business is rising rapidly too. There are good reasons for this. Aside from access to low-cost labor, the fact is that biomass simply grows faster in the tropics than in North America or Europe.

Such developments are not without their problems. Struggles between firms for a lucrative market can be intense. Competitors from other sectors and regions may be willing to support any argument that discredits their rivals. And Western governments are concerned that these advances put them at a disadvantage, too.

On top of this, numerous environmental activists and community campaigners have emerged in recent years accusing these industries of ignoring land rights, polluting waterways, logging illegally and contributing to global warming. These have now attracted the attention of the media and regional policy-makers.

A recent BBC documentary that explored deforestation issues in Indonesia, led Unilever — one of the largest food manufacturers in the world — to launch a supposedly independent review and then terminate contracts worth tens of millions of dollars with its suppliers there. For a developing country, this is a significant set-back.

From the corporate perspective it may appear as if producers are trapped in a conflict with a swarm of Lilliputian detractors — well-intentioned but misguided, energetic young people, from countless non-governmental organizations.

They fly paragliders and helicopters over plantations on reconnaissance missions, build dams to prevent effective soil drainage, and foment resentment towards business among local communities, international agencies and eventually the companies own customers and host governments.

Some firms, seeking to prove otherwise, have sought to be seen to be acting in a more responsible fashion. They have hired security contractors to prevent illicit tree-felling on their concessions. They have supported schemes to tag wood. They have established schools and clinics to ensure local communities benefit from their activities. They have even handed-over land to establish nature reserves.

But in reality this is to view the situation upside-down. Eco-warriors are a manifestation of the problem, not the problem itself. Their tactics — to presume guilt by documentation rather than by factual evidence — first emerged elsewhere. And far from being small and disconnected, they are simply the visible expression of a far more coherent, but invisible force.

Among world leaders, confidence in the economic system today is threadbare. In addition to declining political support and legitimacy, contemporary elites in the West lack a sense of greater purpose through which to steer world affairs. 

The protesters in Indonesia and elsewhere simply reflect this inner loss of certainty. They are indulged to a remarkable extent by multinationals and governments, keen to latch on to anything that appears to offer popular engagement.

Over the last few decades a negative narrative has emerged in the West that presents ambition as arrogant, development as dangerous and success as selfish.

The instigators of this are not the youthful idealists establishing camps in the forest, but disillusioned politicians and officials. They have been supported by an army of writers, academics and social commentators, who seem determined to show that things are always getting worse and that the cause, as well as the victim of this, is human-action itself.

The consequence has been the creation of a cultural environment within which social advancement is viewed with suspicion. Singapore itself has been on the receiving end of this through the recent publication of a report purporting to show it as the worst environmental offender in the world. In reality, this was for having the temerity to develop a city at the equator on limited land.

Far from being involved in a David versus Goliath-like struggle against “big business”, organizations such as Friends of the Earth International are huge concerns in their own right. They do not receive the lion’s share of their income from public donations, as some presume. A cursory look at their accounts reveals them to obtain well-over 80 percent of their funding from foundations and governments.

For instance, the Dutch Ministry of Foreign Affairs funds Hivos — a Netherlands based civil society group with direct links to campaigns in Indonesia — for up to two-thirds of its annual €100 million budget. In its turn, Hivos is listed as a partner to Aidenvironment who, through a former associate of Friends of the Earth, conducted the supposedly independent review of operations in Indonesia that led Unilever to pull-out.

These groups also send teams of Western activists in search of purpose and an identity to discover themselves in the jungles of Southeast Asia. There they interact with local groups — or “indigenous people” as the campaigners patronizingly call them — encouraging these to share their concerns, according to strategies they learnt back home, and with a view to enhancing their credibility.

Whether donors to US-based philanthropic foundations or European taxpayers even know that they are funding other, Western-based NGOs to mount campaigns against businesses in Indonesia is anybody’s guess.

The real problem has been the failure of industry to engage the public in a wider debate over these issues. This has allowed campaigners to seize the moral high-ground by appearing concerned. 

Whilst it is a minority of society that engages with these issues, the majority of these are effectively opposed to business and development. And even when they concede the need for the latter, this is always argued for on a small-scale basis.

Small may be beautiful, but the reality is that big is better. It is more efficient and potentially cleaner. In addition, celebrating small, localized production is a means to entrap communities where they are for the indefinite future.

Unfortunately, individual firms are not best placed to make these arguments. They have their own vested interests. But for the benefit of the people of this region and beyond, it is high time a few enlightened individuals sought to establish an organization to represent the needs and aspirations of all.

The real problem has been the failure of industry to engage the public in a wider debate over these issues.

Worker levy hike may cost planters RM1.03b

OIL PALM planters in Malaysia are concerned that the proposed hike in foreign workers levy would increase their cost of production and affect their competitiveness.

Labour is the single largest cost component for them, making Malaysia the highest cost producer among other plantation crop producers in the region.

The Malaysian Employers Federation (MEF) and the Malayan Agricultural Producers' Association (Mapa) have estimated that the proposed increase in levy and security bond for foreign workers would expand the industry's cost to over RM2 billion from the current RM200 million in levy and security bond.

They expect the higher levy will cost the plantation sector some RM1.17 billion a year in 2015 from the current RM138.4 million, based on 256,382 foreign workers employed in the sector.

"The proposal to increase the existing security bond of RM25O per worker to RM4,000 per worker will cost the industry about RM64.01 million currently, to RM1.03 billion," MEF and Mapa said in a joint statement issued late last night.

They are responding to the proposal by the Cabinet committee on foreign labour, chaired by Deputy Prime Minister Tan Sri Muhyiddin Yassin to increase levy for unskilled workers by next year. The committee was also weighing the introduction of security bonds to ensure employers are more responsible for their employees.

Government-linked companies involved in the sector include Felda Plantations, Sime Darby Plantation, Tabung Haji Plantations, Felcra, Risda and state-owned corporations.

According to MEF and Mapa, labour is critical for sustainable growth of palm oil sector and the plantation industry is still labour-intensive. The upstream and downstream activities within the plantation sector contributed RM65 billion and RM50 billion in net export in 2008 and 2009, respectively.

"Therefore, the government should not heavily tax and burden this strategic industry. As an example, soya bean and rapeseed oil producers in North America and Europe are given subsidies," they said.

MEF and Mapa said the hiring of foreign workers contribute significantly to the expansion of the agriculture sector. An oil palm harvester is estimated to contribute RM195,700 a year to the sector, after deducting salary, housing and amenities, medical and recruitment expenses.

"Based on the approximate figure of 230,000 foreign oil palm harvesters, the total contribution per annum is about RM45.01 billion per year," they said. The proposed hike in levy and security bond would further increase production cost, which could not be passed on to the consumers as plantation companies are price takers and not price setters.

"The government, therefore, should further facilitate and not frustrate the industry. Please let our golden goose continue to lay golden eggs peacefully," MEF and Mapa said.

Palm oil trade barriers, a priority in FTA talks

BARRIERS to palm oil trade will be a priority item on the negotiating table in Malaysia's free trade agreement (FTA) talks with the European Union (EU), said Plantation Industries and Commodities Minister Tan Sri Bernard Dompok.

Malaysia and the EU is due to hold its second round of FTA talks next month.

"We want to ensure the palm oil industry does not face obstacles," he said.

"We will assist palm oil exporters to remove trade barriers and explore new markets while making the palm oil industry competitive," he added.

One of the obstacles, he said, was the negative campaign by Western environmental non-governmental organisations (NGOs) which claimed the expansion of oil palm plantations had sacrificed forest biodiversity.

Rivalry from competing vegetable oils grown in Europe has seen some under-handed tactics adopted by developed nations to curb the growth of the palm oil trade.

Well-funded activist groups like Greenpeace and Friends of the Earth from Europe and their affiliates in Malaysia and Indonesia blame oil palm planters for destroying forests and decimating the orang utan population. They also viciously campaigning against palm oil imports into the EU, especially for biofuels.

The NGOs anti-palm oil campaign is aligned with the EU's Renewable Energy Directive that seeks to discriminate against palm biodiesel.

"These NGOs continue to mislead consumers in Europe. I will inform the International Trade and Industry minister on such unfair trade practices," said Dompok.

Malaysia has to seriously address such trade barriers to palm oil trade because almost a million jobs are at stake. The sprawling palm oil industry also supports some two million livelihoods in the economy.

Dr Gernot Pehnelt, founder and director of GlobEcon, an independent research and consulting institute in Germany had last month argued the directive's assumptions of imported biofuels' ecological impact reflected political and not scientific or economic reality.

The EU ambassador and head of delegation to Malaysia Vincent Piket, however, denies the EU is discriminating against palm oil. He reportedly said the sustainability criteria used by the EU Renewable Energy Directive were science-based, verifiable and in accordance with the World Trade Organisation principles.

CB Industrial expects 50pc more profits

This is written by my colleague, Rupa Damodaran.

CB INDUSTRIAL Product Holding Bhd (CBIP) expects profit to jump by 50 per cent this year on strong palm oil prices and prospects of more estates building and upgrading their palm oil mills.

"We should be doing much better as long as palm oil prices do not drop below RM2,000 per tonne," managing director Lim Chai Beng said after the company's annual general meeting in Petaling Jaya, Selangor yesterday.

Its engineering division, which contributes 60 per cent of its total earnings, is expected to improve although it has been affected by currency fluctuations as half of its contracts are quoted in US dollars.

For the first quarter of this year, results also improved by almost 50 per cent to about RM13 million from RM8.5 million previously, Lim said, adding that the second quarter is likely to be better due to the prices. Last year, CBIP posted RM49 million in pre-tax profit and turnover of RM331 million.

CBIP's has jobs worth RM350 million in its order book till the end of next year, Lim said. "With palm oil prices  hovering at RM2,500 per tonne, we can expect strong and promising growth in our engineering division," he said.

Lim said the economic crisis affected CBIP's profits last year as plantation companies deferred their milling projects. CBIP offers a range of palm oil mills designed to the requirements of oil palm planters, priced between RM3 million and RM40 million.

Lim said CB Industrial is also making a name within palm oil milling circles in Africa and Central America. It has started construction work on a milling plant in the Ivory Coast and three smaller ones in Guatemala and Mexico.

Ta Ann to invest RM50m in 2nd mill

SARAWAK timber and oil palm giant, TA Ann Holdings Bhd, is to invest RM50 million in a second crude palm oil (CPO) mill this year.

Its group managing director and chief executive officer Datuk Wong Kuo Hea said the mill, to be sited in Igan near Sibu, will have a capacity of 90 tonnes per hour. He was speaking to reporters after the group's annual general meeting in Sibu yesterday.

Wong said its logging and oil palm divisions were still the main contributors to group profit, contributing 54 per cent and 39 per cent, respectively.

On its oil palm division's target this year, he said it is to develop another 4,400ha in Igan, Daro and Matu in the Mukah Division.

The group as of December last year had a total planted area of 26,056ha comprising 13,984ha of matured area, 6,699ha of immature area and 5,373ha of young palms. "If the current market price at RM2,300 per tonne for the commodity is maintained, we can expect an even bigger contribution from it this year to our bottom line," he said.

For the logging division, Wong said it was able to export 63 per cent more logs at 226,601 cubic metres last year, compared to 139,328 in 2008.

"Log prices remained resilient in the year under review and the division revenue was 30.6 per cent higher. India remained the largest buyer, accounting for 70 per cent," he disclosed.

Meanwhile, Wong Said Ta Ann too had achieved another environmental milestone, when it signed a memorandum of understanding (MOU) with the WWF Malaysia in "Global Forest and Trade Network (GFTN)" on December 8 last year. It became the first public-listed company in the state to support responsible forestry.

"We are going forward in our forest certification. Hopefully, three years from now, we can get our forest certified. Once we have achieved this, our products will be certified as coming from a legal and sustainable source," he explained.

He said by facilitating trade links between companies committed to responsible forestry, the GFTN would create a market condition that helps to conserve forests, while providing economic and social benefits for the businesses and the people dependent on it.

"In other words, there will be better market connectivity, wider market prospects and product acceptance for Ta Ann through this network of buyers," Wong said. -- Bernama

Cargill plans US$50m refinery and specialty fats plant

US AGRIBUSINESS giant Cargill is investing US$50 million (RM165.5 million) in another palm oil refinery and specialty fats plant in Port Klang.

Managing director Thomas Polhill said construction is expected to be completed by mid-2011. It will provide 100 skilled job opportunities to Malaysians.

The new refinery at the Port Klang Free Zone (PKFZ) will double Cargill's existing specialty fats production capabilities and increase overall refining capacity in Peninsular Malaysia to 950,000 tonnes annually.

"As the anchor tenant in PKFZ's Halal Park, our investment is aligned with the Malaysian government's drive to make Malaysia a halal food hub," he said.

Cargill is one of Malaysia's major palm oil exporter. Its home country, the US, is one of the key palm oil shipment destinations in view of the vegetable oil being a healthy ingredient in making 'no trans fat' confectionery, cookies and snack foods. Asked on the prospects of palm oil shipment to the US this year, he replied "it remains unchanged".

Polhill represented Cargill in the signing of a 30-year lease with Port Klang Authority, the owner of PKFZ. Cargill is leasing 8ha at RM1.80 per square foot annually. Also present were Port Klang Authority and PKFZ Chairman Datuk Lee Hwa Beng and Plantation Industries and Commodities Minister Tan Sri Bernard Dompok.

Lee then said PKFZ has applied to the Economic Planning Unit and Petronas for the supply of piped natural gas.

Sime's first quarterly loss since mega-merger

The following news story is written by my colleague, Zaidi Ismail.

Sime Darby Bhd has made its first-ever quarterly loss since the mega-merger, dragged by delays and cost overruns at its energy and utilities division.

The government-linked Sime Darby merged with the then Golden Hope Plantations Bhd and Kumpulan Guthrie Bhd in November 2007.

Sime Darby, one of the world's top three listed plantation companies, sank into the red with a net loss of RM308.6 million in its third quarter ended March 31 2010 compared to a net profit of RM150.5 million in the same quarter last year.

The energy and utilities arm alone made an operating loss of over RM1 billion in the nine months ended March 31 2010.

Acting group chief executive Datuk Azhar Abdul Hamid said the conglomerate was hopeful of positive fourth quarter and full year results, banking on its other business divisions spearheaded by plantation, property, industrial and mining.

"Due to the energy and utilities issues, we will not meet our target by year-end and anyone can tell that is a no brainer. But our revenue target will not be that far off and I hope that the fourth quarter can make some ground," Azhar told reporters in Kuala Lumpur yesterday when unveiling the group's financial results.

Sime Darby reported net profits of RM2.2 billion in fiscal year 2009 and RM3.5 billion in 2008.

Earlier this month, it announced cost overruns for four of its major projects and made a RM964 million provision for the losses.

Sime Darby also asked its group chief executive officer Datuk Seri Ahmad Zubir Murshid to go on a leave of absence while the company conducts an internal probe into the losses. Inclusive of the four projects, the group's total provision for the nine months to March 31 2010 has reached RM1.3 billion.

Azhar said that only the Bakun dam project was causing it to bleed, while the account books for Qatar Petroleum and Marine Qatar have been closed and will not impact the group's earnings any further. He added that if it had not been for the issues at the problematic energy and utilities division, the third quarter would have been its best quarter ever.

Azhar said that it would be hard to quantify any further provisioning in future until the ongoing internal probe was completed. It is expected to wrap up by the end of financial year ending June 30 2010.

Azhar said the probe was entering the second phase and had been extended to all six business divisions. The five others are plantation, property, automotive, healthcare and industrial. He also said that there were no plans to divest the energy and utilities division because it was not a new business to the group and had a good track record and capable team to handle future projects.

On the search for a new group chief executive to replace Ahmad Zubir, Azhar said an announcement was expected to be made by the end of the group's financial year.

Azhar said he had met up with officers from the Malaysian Anti-Corruption Commission (MACC) and answered several questions, but had no idea of what would happen next. "Sime Darby will give its fullest cooperation to the agency to identify issues. Let them do their work while we do ours to generate business and enhance value," he said.

MACC investigates Sime Darby’s huge losses

My colleague Farrah Naz Karim and boss Shahriman Johari write.

PUTRAJAYA: The Malaysian Anti-Corruption Commission (MACC) has taken a proactive step by initiating investigations into the massive losses suffered by Sime Darby.

Investigations will start with a probe focusing on the internal inquiry being carried out by the conglomerate. The company’s internal investigation, believed to have started some eight months ago, is to determine the real extent of the losses in its energy and utilities division and whether they were anything beyond just making bad investment calls.

There may also be probes into other divisions and projects. MACC investigations director Mustafar Ali confirmed that the commission had started investigations.

“We will be identifying areas that have elements of corruption, misappropriation and abuse of power. Like all cases, we’ll deal with this one with urgency, not only because this probably involves billions of ringgit but also the interests of the people,” he told the New Straits Times yesterday.

MACC had last week offered Sime Darby its expertise in detecting elements of graft but the country’s oldest and largest conglomerate had to date not approached the antigraft body for help in facilitating its investigation.

Until last week, MACC said it would let Sime Darby complete its investigation and would only open an investigation file into the financial affairs of the government-linked company if any element of corruption was suspected in its massive losses.

Sime Darby recently confirmed the market’s worst fears when it announced that it would have to post massive losses suffered in projects in the Middle East as well as the Bakun hydroelectric dam project in Sarawak.

It is expected to post close to RM1 billion losses in its third quarter results, which are expected to be released tomorrow. Sime Darby is also expected to disclose tomorrow the findings of the task force set up to investigate its energy and utilities operations.

The cost overruns were discovered by a board work-group formed in October last year to “assess the corporate governance and performance” of Sime Darby’s energy and utilities division."

The work-group members are Datuk Seri Andrew Sheng, a member of the National Economic Advisory Council, Tan Sri Wan Mohd Zahid Mohd Noordin and Datin Paduka Zaitoon Othman.

In announcing the losses, Sime Darby also ordered its group chief executive, Datuk Seri Ahmad Zubir Murshid, to take leave of absence. The company has appointed Datuk Azhar Abdul Hamid acting group CEO for the interim period, while the government has assured transparency in any investigation into the company.

This is not the first time the anti-graft body started an investigation into a GLC. In 1996, MACC, which was then known as Anti-Corruption Agency, launched investigations into Perwaja Steel after it was declared insolvent, with debts and losses totalling RM10 billion.

This led to the arrest of its managing director, the late Tan Sri Eric Chia, in February the same year, where he was charged with embezzlement. He was acquitted in 2007 after the Sessions Court ruled that the prosecution had failed to establish a prima facie case against him.
Meanwhile, the Securities Commission (SC) is studying the developments at Sime Darby, which is carrying out a probe after cost overruns of almost RM1 billion for this year alone.
"We are assessing the developments at Sime Darby Bhd. At this stage, the SC prefers not to comment any further," an SC spokesperson said.
Just two weeks ago, Sime Darby asked its chief executive officer (CEO) to leave as it looked set to book losses of almost RM1 billion for the second half of this year on cost overruns in its energy and utilities division. It made a net profit of RM1 billion in the first half.
Acting CEO Azhar Abdul Hamid indicated in a news report last weekend that there could be more provisioning as it probes further.

CSPO shipments to rise by year end

This is written by my colleague Rupa Damodaran.

CERTIFIED sustainable palm oil (CSPO) shipments are expected to increase to 2.5 million tonnes by the end of the year.

"This should be able to match the European Union demand for both food and biofuel consumption," said Dr Vengeta Rao, secretary general of the Roundtable for Sustainable Palm Oil (RSPO).

He was speaking at the International Palm Oil Council in Kota Kinabalu yesterday.

Based on audit reports of growers and palm oil mills, CSPO shipments will total 2 million tonnes by June, Rao said. The single largest crop certification in the world will also be undertaken by an independent supply chain certification body.

"We're contracting it to take over the certification process from RSPO. It will be a significant shift." RSPO will be undertaking a pilot study with Accreditation Services International for one and a half years.

He also said that that more countries have shown interest in the 450-member RSPO with the addition of the Solomon Islands, Colombia,Thailand and Ghana. Despite claims that the multi-stakeholder grouping was losing support, the RSPO has seen 12 new members a month in recent times compared with five a month in 2008.

Malaysian smallholders will also jump on the bandwagon as Felda is undergoing the auditing process.

New Palm Oil Futures Contracts Off To Slow Start; Volume Thin

Article written by Lim Shie Lynn, sourced from

KUALA LUMPUR (Dow Jones)–The CME Group Inc.'s (CME) newly-introduced dollar-denominated crude palm oil futures contract has got off to a slow start with only 12 lots trading overnight in its first session Monday, according to data from the exchange.

The September contract – the only contract to trade during the Globex session – closed US$5.50 higher at US$752 a ton. At 0423 GMT, the contract was trading US$11.75 lower at US$740.25 per ton with only five lots traded so far. One lot is equivalent to 25 tons.

Despite lukewarm interest on debut, market participants said interest in the contract could grow as agribusiness traders and palm oil refiners start using the contract to hedge and eventually, speculators coming in and adding volume.

"Concerns about the euro-zone debt issues are keeping investors on the sidelines. Otherwise, the palm oil contract on CME would've done better on debut," said S. Paramalingam, executive director at Kuala Lumpur-based brokerage Pelindung Bestari Sdn Bhd.

"It will take a while for volume to grow but there is interest in the contract. It is only a matter of time," an agricultural broker based in Chicago said via email late Monday.

Increased palm oil usage in the US is also expected to generate interest in the dollar-denominated contract. The US palm oil imports have risen since the beginning of the year, partly due to a ban on the sale of trans fats in several states as well as California's ban on the use of trans fats in restaurants.

Palm oil is a healthier substitute and does not require hydrogenation due to its semi-solid form, said a company executive at a Malaysia-listed plantation company which ships palm oil to the US.

Palm oil shipments to the US rose to 306,181 tons in the January-April period, up 7.3% on year, data from the Malaysian Palm Oil Council showed. America consumed 859,000 tons of palm oil last year.

"We are pleased there was trading on the first day and know that we have work to do as part of our continuing education efforts on the risk management attributes of the product," Tim Andriesen, managing director for agricultural commodities at CME Group said via email today.

Another newly launched contract, the benchmark August crude palm oil (CPO) contract on the Indonesia Commodity and Derivatives Exchange (ICDX) also got off to a slow start on its debut Friday, with only 216 lots traded, so far. The August contract was last trading 0.1% lower at IDR6,840 a kg, with 31 lots traded.

Both CME and ICDX palm oil contracts face hurdles as the two are vying for a share of the market which has so far been dominated by the ringgit-denominated CPO futures contract on the Malaysia Derivatives Exchange.

KL, Jakarta fight EU directive on palm oil

The following are articles by my colleague Rupa Damodaran and state newswire Berita Nasional Malaysia (Bernama).

THE move by Indonesia and Malaysia, the top two palm oil producers, to take up the industry trade dispute against the European Union (EU) will clear the name of the commodity, says Malaysian Palm Oil Council (MPOC) chief executive officer Tan Sri Yusof Basiron.

There are currently too many exaggerated figures being used to "bash" palm oil from making its mark in the European market, he said.

"We have done a study and there is a case against the EU for the way it has formulated the Renewable Energy Directive and that is already against the WTO guidelines," he said in an interview recently.

There was also a recent report stating that the EU, through its environmental ministries and commissions, is funding up to 70 per cent of the operating budgets of environmental NGOs. Such funding implicates the EU for creating barriers to trade for agricultural products from developing countries.

Plantation Industries and Commodities Minister Tan Sri Bernard Dompok is expected to meet his counterpart in Indonesia later this month on the possibility of drafting a substantive complaint against some of the most developed countries in the EU. "The strategy of these big economies has stacked a lot of issues against small countries like Malaysia, making us hapless."

Many of these issues were used by the environment NGOs to dispute the sustainable agricultural practices of oil palm growers in Malaysia to take the "heat" off the European oils like rapeseed which enjoys subsidies.

Yusof, who has been pursuing the Malaysian fight against the European environment NGOs for their allegations, admitted that it could probably take years before the results are seen. "In the meantime, we will take all avenues to correct the inaccuracies about the commodity."

One important fact which Malaysia and Indonesia want to stress is palm oil's ability to supply a vital food component to billions of people around the world while providing millions of jobs and income to small farmers and plantation workers.

Deforestation is also another area which Malaysia has found some allegations unfair and unfounded. "Why should we be dictated when other oils are not working sustainably and, instead, continue to be given preferential treatment while in countries like Canada there is still deforestation going on."

Malaysia still maintains 56 per cent of its total land area under forest, thereby keeping its pledge made at the 1992 Rio Summit to keep at least half of its land as forests.

EU envoy: Malaysian CPO exports not affected

THE sustainability criteria in the European Union (EU) Renewable Energy Directive (RED), due to come into force on December 5, will not affect Malaysia's palm oil exports to the region.

EU ambassador and head of delegation to Malaysia Vincent Piket said there will be no change for crude palm oil (CPO) imports. "The EU will not block any Malaysian CPO exports. Exports into the EU can continue just as they are today, with no new tariffs, quotas, restrictions or conditions," he said in Kuala Lumpur yesterday.

"The EU RED and its sustainability criteria do not concern Malaysia's CPO exports to the EU market for consumer products, like food, cosmetics, detergents and so forth. In other words, 90 per cent of Malaysia's palm oil exports to the EU are in no way affected by the new EU rules," he said.

Certain quarters have voiced their concern about the EU new directive and its effect on palm oil exporting countries like Malaysia and Indonesia. Piket said the EU RED is an essential element of the climate and energy package to meet the group's climate change and energy policy objectives.

He said the directive contains a 10 per cent binding target for renewable energy in transport, including biofuels, by 2020. This will provide an opportunity, also for developing countries, to supply biofuels to the EU market.

"With this directive, the EU is creating a new market and we want to make sure that we do it right. It is crucial that the measures to fight climate change and implement the renewable energy policy, including biofuels, do not have negative side-effects on the environment," he said.

Piket said it is for this reason that the directive contains sustainability criteria for biofuels. The sustainability criteria are related to two issues - the lifecycle greenhouse gas emissions of biofuels and the land used to produce the biofuels. "They aimed to achieve significant greenhouse gas savings compared to fossil fuels and prevent negative side-effects on biodiversity," he said.

Piket said the sustainability criteria used by the EU RED were science-based, verifiable and in accordance with the World Trade Organisation principles. "The criteria will be the same across the EU. They will apply to both EU production and imported biofuels," he said.

The EU RED foresees incentives for sustainably produced biofuels, though biofuels which do not meet the criteria can still be imported and marketed in the EU, Piket said. "They will not, however, receive tax exemptions, subsidies or other incentives from EU member states, nor will they count towards the objective of 10 per cent of renewable energy in transport." 

According to Piket, it is important for Malaysia to note that there are incentives for sustainably produced biofuels. The EU RED, he said, is exclusively about trade in biofuels. "The EU countries will be offering incentives to promote the use of sustainably produced fuels, including biodiesel," the envoy said. - Bernama

Indonesia starts crude palm oil futures

JAKARTA, May 21 (Reuters) - The Indonesia Commodity & Derivative Exchange (ICDX) launched its crude palm oil futures on Friday, but analysts said its rupiah denomination may limit trading interest to local players.

The contract was Indonesia’s second attempt at creating a local price benchmark to rival Malaysia’s crude palm oil futures. “It is not easy to launch a futures contract because we have to convince people to trade here,” said Deddy Saleh, the head of the commodity futures exchange supervisory body.

“But we expect the contract will be liquid.” ICDX’s August CPO futures contract closed at 6,840 rupiah (US$0.740) per kg on Friday, compared to 7,020 rupiah per kg when it opened. Market volume was 115 lots of 10 tonnes each.

Megain Widjaja, ICDX’s managing director, said the exchange expected trading volume to gradually grow to about 1,000 lots by the end of June.

“It is not easy for an exchange like this but if all market players participate, it will make the exchange more liquid,” Widjaja said. “I’m optimistic the volume will grow to a minimum of 1,000 lots or 10 percent of Bursa Malaysia’s volume by the end of next month,” he said.

Analysts have said the exchange may struggle to increase liquidity where there is a much smaller investor base and a lack of regular palm oil industry data to trade.

ICDX said it planned to address the problem by sourcing data from third parties.

While players prefer to wait and see whether the exchange can build up liquidity, analysts said the Indonesian exchange would attract mainly local players rather than foreign investors.

“It may attract Malaysians who have Indonesian business and buy CPO from Indonesia as they can actually take tenders in Belawan or Dumai port,” a trader in Kuala Lumpur said. “But again since the contract is in rupiah it may deter foreign players who don’t have business in buying Indonesia CPO.”

Another analyst based in Singapore added investors may look at the ICDX exchange to get information on local prices as well as Indonesian monthly export taxes.

Indonesia is the world’s top palm oil producer with production expected to reach nearly 23 million tonnes this year. --- Reporting by Niluksi Koswanage and Karima Anjani. Editing by Sara Webb

The following news article is written by Lim Shie-Lynn and sourced from

New Palm Oil Contracts Face Tough Times Amid Euro Zone Fears
KUALA LUMPUR (Dow Jones)--New palm oil futures contracts launching on the Indonesian Commodity and Derivatives Exchange (ICDX) and CME Group Inc.'s (CME) Globex platform may struggle to steer interest away from the benchmark contract in Malaysia, traders and analysts said.

Should the new instruments attract only tepid responses, the perception will be reinforced that Malaysia's derivatives exchange is the only viable place to trade palm oil futures, after a recent Singapore-based futures venture failed to catch the eye of investors.

One reason it may be difficult to attract liquidity is because investors, such as plantation companies and fund managers, will be hesitant to jump into the market, amid growing concerns that the euro-zone debt crisis could curb global economic recovery and crimp interest in the contracts. 

"In the longer term, the dollar contract may have better prospects over the Indonesian palm contract in terms of reliability and transparency," a senior trading executive at a Kuala Lumpur-based commodities brokerage said. "But for now, both contracts may face difficulties attracting interest as markets weaken." 

Many trade participants expect the ringgit to continue strengthening, giving CME's futures an edge over the rupiah-denominated contract that debuts on the ICDX Friday. The CME contract, which launches Monday, is tied to Bursa Malaysia Derivatives' ringgit-based benchmark palm oil contract. 

"Some palm refiners see CME's dollar-denominated contract as a good hedge which may reduce currency risk," a trading executive at a Malaysia-based plantation company said. 

Refining margins have fallen into negative territory as the ringgit surged 7% against the dollar this year--making it Asia's best performing currency--after Malaysia's central bank raised interest rates. 

The CME contract "is a useful tool when (investors) believe currency changes will have an impact on palm oil prices, as this provides them greater flexibility in managing both the commodity and currency risks," Tim Andriesen, Chicago-based managing director of agricultural commodities, products and services at CME, said. 

A second CME official said that close links between palm oil and soyoil may boost liquidity for the new contract. 

Historically, palm oil has traded at a discount to soyoil, but the gap has narrowed from $100 a metric ton since last year and palm oil is now trading at a slight premium as output in Malaysia remains weak while the South American soybean crop hits record levels. 

"We have seen strong interest in our CPO contract and are hopeful that this interest is indicative of market participation," Andriesen said. "We will work with our customers on educational efforts to promote this product." 

The new contracts aren't the first time a challenger to the BMD's mantle has emerged. 

The Singapore-based Joint Asian Derivatives Exchange launched dollar-denominated palm oil futures in 2007, but failed to generate much interest among investors.

Sime Darby probe widens

The following news stories are written by my boss Mustapha Kamil and colleague Zaidi Ismail.

KUALA LUMPUR: The ongoing internal probe by Sime Darby Bhd to find out how it made staggering losses has now been expanded to cover all its six business divisions.

The probe was previously confined to the conglomerate’s energy and utilities division. Sime Darby’s five other business units are the plantations, property, healthcare, automotive and industrial divisions.

Chairman Tun Musa Hitam said the management and external professionals were now putting the conglomerate under the microscope to weed out any weaknesses before coming up with any short-term and long-term restructuring efforts.

“Work is in progress at Sime Darby. We are being transparent and very serious about it. Let the process of democracy work. I would like to assure the ordinary people, who are majority shareholders of Sime Darby, that nothing will be swept under the carpet. The timeline for this probe is as soon as possible,” Musa said here yesterday after closing the World Islamic Economic Forum, of which he is chairman.

The government-linked company announced last week that it would have to book massive losses suffered in projects in the Middle East as well as the Bakun hydroelectric dam project in Sarawak. Sime Darby is expected to book close to RM1 billion in losses in its third-quarter results, expected to be released next Thursday.

Last week, Sime Darby also ordered its group chief executive Datuk Seri Ahmad Zubir Murshid to take leave of absence. It has appointed Datuk Azhar Abdul Hamid as acting group CEO.

The government has assured transparency in any investigation conducted on the company. Musa said the internal probe might take some time due to the group’s sheer size of more than 100,000 workers and presence in 20 countries.

On calls for him to step down, Musa said he and the entire board would do so only after going through due process and then found guilty.

“To ask me to step down in two or three days is not fair. There is a due process and methodology for me and the board to first go through. To step down, you must first have the basis to do so. Nobody can ask us to step down except for the shareholders.”

Sime likely to miss RM2.5b net profit target

Sime Darby Bhd is facing the possibility of missing its key performance indicator target of RM2.5 billion net profit for financial year 2010 as it prepares to book in almost RM1 billion losses in its third quarter results.

The conglomerate will include losses from ventures in the Middle East as well as the Bakun hydroelectric dam project in the third quarter numbers it will report on May 27.

A poll of 15 research houses came up with a net profit forecast averaging RM2.12 billion for the financial year, taking into consideration the losses. Sime reported net profit of RM2.28 billion in 2009 and RM3.51 billion in 2008.

The net profit forecast for financial year 2010 ranged from as low as RM1.58 billion to as high as RM3.1 billion. Analysts said that many of the forecasts in the higher ranges were arrived at on the assumption of crude palm oil prices remaining high for the rest of the company's fiscal year.

While Sime Darby conducts a wide range of businesses that include property development, engineering, automotive and healthcare, its plantation division has always been the jewel in the crown. An internal probe at Sime Darby is ongoing to determine the real extent of the losses, and it is understood that the probe could be extended beyond its problematic energy and utilities division.

Amid the probe, there were more calls from outside for Sime Darby to look also at its current business structure and company executives did not discount the possibility of the group shedding some of its fat later.

The Sime Darby of today was the result of a merger between the then Sime Darby Bhd, Golden Hope Plantations Bhd and Kumpulan Guthrie Bhd in November 2007. The merger had its critics, but its proponents argued that the exercise was to create economies of scale.

The Minority Shareholder Watchdog Group issued a statement yesterday, saying it was common knowledge that many investors bought Sime Darby shares mainly for its plantations business, which contributed to 70 per cent of the group net profit in 2009.

Prime Minister Datuk Seri Najib Razak said yesterday that Sime Darby should first find out why it had incurred the losses before any issue on responsibility was to be raised. "We need to investigate cause of the losses first. We can't do anything about the question of responsibility at this point in time," Najib said at a function in Kuala Lumpur.